China’s inflation softens more than expected (CNH, HSI)

Today’s inflation report revealed that producer prices fell for a second month from a 26-year high and CPI undershot expectations. And that could weigh on growth.

In the month of December, China’s headline inflation rose 1.5% y/y compared with 2.3% in November. During a time that inflationary concerns linger this may not seem such a bad thing. Yet what needs to be considered is that lower inflationary pressures also erode growth potential, at a time where Q4 GDP for China is already a slight concern.

20220112chinaCPIfx Back in December, poor retail sales and investment data already had analysts revising growth lower. And to underscore the potential for inflation pressures to remain sanguine, producer prices also fell for a second month after hitting a 26-year high. As this is a key inflationary input and CPI has continually lagged PPI in recent year, do we now need to be concerned over disinflation form China?

If so, we could expect further stimulus from Beijing in Q1, and helped explain why the China A50 rose around 0.7% today after the release. Whilst it is too early to call a bottom we continue to suspect price could rally from 15,200 and head for 16,000 over the near-term.

 

Read our guide on the PBOC (People's Bank of China) and inflation

 

USD/CNH touches a 5-day low

We outlined yesterday that we saw the potential for USD/CNH to break higher from bearish reversal pattern, given its stubbornness to hold below 6.3500. And that remains a possibility, even if USD/CNH has fallen to a 5-day low today. Momentum favours more downside from here, but keep in mind that all eyes will be on US inflation data later today – where a soft print could push it further low, whilst a strong print could help it recover bac towards/above 6.3800.

20220112cnhFX

The Hang Seng rallies to upper trend channel

Wall Street’s rebound, which was led by tech stocks, has helped the Hang Seng gap up to a 1-month high and extend it rally from the January low to 6.5%. A double bottom has formed around 22,600which projects an approximate upside target around 22,650. However, its rally has stalled at the upper trendline of a multi-month bearish channel, just above 24,000. Purely from a technical perspective it is plausible to expect a pullback from these levels, especially if US inflation is to come in strong and weigh on Wall Street once more. If the trendline holds we’d look for the gap to fill and target 28,863. Yet should we simply see an upside break then the immediate target for bulls is near the 24,385 high. Which way it breaks will likely be dictated by sentiment for global equities over the near-term.

20220112hsiFX

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account